Election research: Childcare fees will increase after next election thanks to parties' funding shortfall

Research looking at the impact of the manifesto pledges on ‘free childcare’ has found significant funding shortfalls that will, experts warn, mean parents face increased fees and more additional charges following the election.

The research was produced by independent early years experts Ceeda, who earlier this year found that the early years funding shortfall stands at £662 million and has grown significantly in recent years. Current funding levels are based on a cost analysis conducted in 2015 and used data from 2012 - 2013.1 They do not consider provider outgoings which have increased dramatically in line with rises to the national minimum and living wages, pension contributions and business rate increases.

Whereas the Conservative made no announcement on childcare in their manifesto, both Labour and the Liberal Democrats promised to extend ‘free’ childcare and pledged to increase funding rates.  However, according to today’s research, all three parties’ manifestos costs will create significant early years funding shortfalls – leaving providers with little choice but to increase parents’ fees or face closure.

  • The Conservative manifesto made no new commitments for early years provision but, with promises to increase the National Living Wage, the funding shortfall is likely to continue to grow dramatically and will be at least £824 million.2
  • The Labour manifesto pledged to introduce 30 hours free childcare and early education for all 2-year-olds and all 3- and 4-year-olds and to provide up to 60 additional hours at subsidised rates staggered with income. At full rollout, the early years funding shortfall under a Labour government would be £80 million.
  • The Liberal Democrat manifesto has promised 35 hours free childcare for children aged 9-23 months in working households, 35 hours free childcare for all 2-year-olds and 35 hours free childcare for all 3- to 4-year-olds. Provision will also be for 48, instead of 38 weeks of the year. At full rollout, this could leave a shortfall of £314 million, but a phased introduction and annual rate increases could soften this blow.

Early years underfunding is not a new issue but the offer of ‘free’ childcare has been especially criticised by providers and parent groups since the extended fifteen hours for working parents – commonly referred to as 30 hours - was rolled out in September 2017.

According to the government’s own figures, fewer than half of those parents accessing funded places find them to be genuinely free and thousands of providers have closed in recent years.3 4 There is also concern about the type of provider that is closing, with Ceeda research released earlier this year revealing the number of providers fearing closure in deprived areas is double that of those operating in more affluent places.5

Underfunding has also caused a crisis in recruitment and retention in the sector, raising serious questions about whether the sector will be able to cope with a significantly higher number of children trying to access places.

Responding to the research, Neil Leitch, chief executive of the Early Years Alliance, the country’s leading early years membership organisation, said: “Whoever ends up on the steps of Downing Street next month needs to be honest about the true cost of ‘free childcare’.

“No other business sector is expected to deliver a flagship government promise without adequate funding – why should childcare be any different? More of the same is not good enough: we need to ensure funding covers the true cost of delivering quality childcare because anything less will continue to hit parents in the pocket and lead to many thousands more provider closures.”

Dr Jo Verrill, Managing Director of Ceeda, who led the research, said:

“This analysis of party pledges and sector operating costs throws into sharp relief the challenges which lie ahead for the sector whoever wins the election. 

“A new Conservative administration would continue the funding freeze and seriously threaten the sector’s sustainability, particularly in deprived areas. In contrast, the Labour proposals appear well-costed, with significantly lower shortfalls. The Liberal Democrat commitment is the most radical and would need a careful, phased rollout tied to annual fee increases if large funding deficits and major staff shortages are to be avoided.”




Notes for editors

A copy of Ceeda’s report is available here: https://www.aboutearlyyears.co.uk/media/1452/counting-the-cost-of-early-years-election-pledges_issue-1.pdf.


  1. Based on delivery costs for children aged 2 to 4 years only and assuming take-up of funded places is in line with 2018/2019 trends, PVI childcare providers face an estimated funding deficit of £455 million in 2019/2020. The deficit rises to an estimated £662 million when subsidies for younger age groups are taken into account.
    The average cost to deliver one hour of early education and childcare for a two year old is now an estimated £7.22, set against an average funding rate of £5.27, leaving a 37% funding shortfall.  The average cost to deliver one hour of early education and childcare for three and four year olds is now an estimated £5.36, set against an average funding rate of £4.46, leaving a 20% funding shortfall.
  2. This estimate reflects the fact that childcare providers often charge fees significantly lower than their costs to provide places for very young children. The higher costs of providing care for under 3s are spread across age-groups, so places can be offered at a viable price-point for families. Existing funding models do not factor this cross-subsidy, and not only fail to meet provider costs for the age ranges they target, but reduce provider's ability to manage fees in ways which make care for young children viable. 
  3. According to the DfE’s ‘Evaluation of the first year of the national rollout of 30 hours free childcare’ (September 2018), the 30-hours offer was ‘not completely flexible or free for all parents’ with 'substantial proportions' reporting that there were some restrictions on when they could use the hours (48%) or that they had to pay charges for additional items or activities (56%).
  4. According to the ‘Survey of Childcare and Early Years Providers’ (November 2018), The total number of childcare providers in England has fallen by 8,800 since 2016.
  5. Almost one in five childcare providers (17%) in the most deprived areas of England anticipate closure in the next twelve months – over twice as many as those in the most affluent (8%) (Ceeda, Counting the cost, June, 2019).

About the Alliance

  • The Early Years Alliance is the largest and most representative early years membership organisation in England. A registered educational charity, it also provides high-quality affordable childcare and education to support children and families in areas of deprivation throughout the country.
  • The Alliance represents 14,000 members and supports them to deliver care and learning to more than 800,000 families every year. We deliver family learning projects, offer information and advice, produce specialist publications, run acclaimed training programmes and campaign to influence early years policy and practice.
  • The Alliance website is www.eyalliance.org.uk

About Ceeda

Ceeda Research Limited is an independent research agency specialising in analysis of the early years education and childcare sector. Widely acknowledged as leading sector analysts, Ceeda’s work is widely referenced across the childcare sector, at Westminster, and in key publications such as the recent Social Mobility Commission’s State of the Nation 2018-2019 report.